CAIA - 22 - Key Concepts in Commodity Markets Flashcards Preview

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Flashcards in CAIA - 22 - Key Concepts in Commodity Markets Deck (116)
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1

Effects of the business cycle vary across and within commodity sectors. For instance, responses to the business cycle are ___ for most energy commodities but quite ___ for agricultural commodities.

Effects of the business cycle vary across and within commodity sectors. For instance, responses to the business cycle are similar for most energy commodities but quite varied for agricultural commodities.

2

___ ___ is the main currency in which commodities are traded globally.

U.S. Dollar is the main currency in which commodities are traded globally.

3

The clearest relationship between commodity prices and the business cycle is with ___ and ___ ___.

The clearest relationship between commodity prices and the business cycle is with energy and industrial materials.

4

Factors that affect the relationship between commodity prices and the business cycle are:

1. I___ ___

2. C___ ___ ___

3. I___

4. D___.

Factors that affect the relationship between commodity prices and the business cycle are

1. Interest rates

2. Central bank policies

3. Inflation

4. Demand.

5

High ___ ___ ___increase the opportunity cost for investors who have commodities in storage

High real interest rates increase the opportunity cost for investors who have commodities in storage

6

High real interest rates ___ the incentive for extracting commodities today rather than tomorrow.

High real interest rates increase the incentive for extracting commodities today rather than tomorrow.

7

High real interest rates ___ the desire of companies to carry inventories.

High real interest rates decrease the desire of companies to carry inventories.

8

High real interest rates ___ investors to move out of commodity contracts into fixed-income instruments.

High real interest rates encourages investors to move out of commodity contracts into fixed-income instruments.

9

High real interest rates ___ the market price of commodities.

High real interest rates reduce the market price of commodities.

10

At times, commodity prices can still decline in a low interest rate environment. This was demonstrated in 20___-___ and was due to the ___of the ___in commodities.

At times, commodity prices can still decline in a low interest rate environment. This was demonstrated in 2014-16 and was due to the maturation of the supercycle in commodities.

11

When a central bank adopts a contractionary monetary policy to try and fight inflation, the short-term real interest rate ___, which causes commodity prices to ___.

When a central bank adopts a contractionary monetary policy to try and fight inflation, the short-term real interest rate increases, which causes commodity prices to decline.

12

High inflation ___ prices of commodities. This is driven by investors seeking an ___ ___and also usually during expansionary phases of the economy when demand for ___ ___is higher.

High inflation increases prices of commodities. This is driven by investors seeking an inflation hedge and also usually during expansionary phases of the economy when demand for commodity inputs is higher.

13

___ ___effects dominate the pricing relationship for agricultural and livestock commodities, while ___dominates the pricing relationship for energy-based commodities and industrial metals.

Interest rate effects dominate the pricing relationship for agricultural and livestock commodities, while inflation dominates the pricing relationship for energy-based commodities and industrial metals.

14

According to the ___ ___, prices of exhaustible commodities should increase at the prevailing interest rate.

According to the hotelling theory, prices of exhaustible commodities should increase at the prevailing interest rate.

15

The hotelling theory (is/is not) consistent with empirical data.

The hotelling theory is not consistent with empirical data.

16

The hotelling theory assumes that production costs (do/do not) change.

The hotelling theory assumes that production costs do not change.

17

Unpredictable changes in ___ for a commodity may cause commodity prices to change at rates that differ from the prevailing interest rate.

Unpredictable changes in demand for a commodity may cause commodity prices to change at rates that differ from the prevailing interest rate.

18

Commodity ___ refer to long periods of increasing commodity prices followed by long periods of decreasing prices cause by supply shocks. Evidence suggests that they last ___-___years.

Commodity supercycles refer to long periods of increasing commodity prices followed by long periods of decreasing prices cause by supply shocks. Evidence suggests that they last 30-40 years.

19

Non-oil supercycles follow ___.

Non-oil supercycles follow GDP.

20

The average of each supercycle of non-oil commodities tends to be ___ than that of the previous cycle.

The average of each supercycle of non-oil commodities tends to be lower than that of the previous cycle.

21

___ ___had the strongest and steepest long-term downward trend during the 20th century, followed by ___-___ ___ and ___. In contrast, real ___prices had a long-term upward trend.

Tropical agriculture had the strongest and steepest long-term downward trend during the 20th century, followed by non-tropical agriculture and metals. In contrast, real oil prices had a long-term upward trend.

22

Between 2003 and 2008, real prices of energy, metals and food commodities ___ significantly.

Between 2003 and 2008, real prices of energy, metals and food commodities increased significantly.

23

The current supercycle expansion can be attributed to ___.

The current supercycle expansion can be attributed to China.

24

Commodity trading firms, in pursuing trading profits, serve as ___ of ___.

Commodity trading firms, in pursuing trading profits, serve as agents of transformation.

25

Trading firms transform commodities in 3 ways:

 

1. ___

2. ___

3. ___

Trading firms transform commodities in 3 ways:

 

1. Space

2. Time

3. Form

26

___ transformations generally involve transporting commodities from regions where they are produced to regions in which they are consumed.

Spatial transformations generally involve transporting commodities from regions where they are produced to regions in which they are consumed.

27

If a firm buys a commodity to store it for future delivery, they are engaging in a ___ transformation.

If a firm buys a commodity to store it for future delivery, they are engaging in a time transformation.

28

If a firm takes a raw material and transforms it into another product, they are engaging in a ___ transformation.

If a firm takes a raw material and transforms it into another product, they are engaging in a form transformation.

29

___ ___risk refers to risk associated with changes in spot commodity prices.

Flat price risk refers to risk associated with changes in spot commodity prices.

30

Commodity trading firms typically have (a lot/little) exposure to flat price risk.

Commodity trading firms typically have little exposure to flat price risk.

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